The net speculative long position [in oil] (futures and options) on the NYMEX is now 323,087 contracts (contracts of 1,000 barrels). This is the fourth highest on record. It is more than 4x what could be considered normal by standards of even the recent past. This net speculative long position is also up 52% so far this year. Not only that, but it is more than double the level prevailing at the all-time peak in the price ($145/bbl) back in the summer of 2008.
If this net speculative long position were to go back to the prior all-time highs of around 225,000 back in early January and mid-November, we would probably be talking about a move down to $85-90 a barrel in crude, which would be a great buying opportunity in what is clearly a secular bull market, but a correction that would best be avoided if it were to occur. Based on this analysis, there would seem to be a $15-20/bbl geopolitical risk premium in today’s oil price; something to consider for the near-term, even for the oil bulls.